Discussions of how to combat corruption have focused more sharply on the
recipients of bribes than on those who pay them. A more balanced approach,
which is emerging, promises to make anticorruption efforts more effective.

WHEN the talk turns to corruption, the news media and most international
institutions (whether official or nongovernmental) focus on the demand side
of the equation: on public officials who abuse their office for private
gain. Frequently, the supply side is given less attention. Those who pay
bribes are sometimes depicted as innocent parties, forced by ruthless
officials to provide kickbacks and do special favors in return for
business.

The reality is that both parties to corrupt practices conspire to defraud
the public, to undermine fair trade, to waste resources, to frustrate
development, and often to increase human suffering.

For example, suppose a European supplier of pharmaceuticals does a deal
with a minister of health from a developing country that has received
emergency funds from an aid agency to purchase urgently required medicines.
Instead of agreeing on a purchase of new drugs, the minister and the
supplier conspire to use the aid funds to purchase out-of-date drugs, which
are far cheaper. The supplier consequently makes a handsome profit and
places a portion of it in an offshore bank account set up by the minister.
Many of those in the minister's country who are sick receive the old, less
effective drugs and die.

Current anticorruption efforts

Today, many organizations are assisting governments to curb corruption and
build more transparent institutions. Initiatives are being launched to
create a free press and a politically independent judiciary capable of
investigating corruption and prosecuting corrupt individuals or firms.
Efforts are under way to create effective offices of auditors general,
honest and accountable revenue collection services, and more open public
procurement processes, and to undertake many other institutional reforms to
make life tougher and riskier for corrupt officials.

While government officials and the public at large in developing countries
are increasingly embracing these initiatives, there is a widespread sense
in these countries that the efforts of the international community lack
balance. Too often the new anticorruption zeal appears uniquely directed at
public officials who take bribes and at corrupt systems in the developing
countries and the countries in transition in Eastern Europe and Central
Asia. Meanwhile, bribe givers appear to remain undisturbed.

Many bribes paid in the course of international commerce originate in firms
headquartered in the same industrial countries whose governments are now,
more than ever, calling for new anticorruption campaigns in developing
countries. There is a hollow ring, for example, to declarations of support
by German foreign aid officials for anticorruption initiatives in Africa
when Germany has no laws on the books to bar its enterprises from paying
foreign bribes and permits them to be deducted from German corporate taxes.

Government and civil society leaders in developing and transition countries
who challenge corrupt systems, and even corrupt leaders, in their countries
display enormous courage. Building anticorruption movements takes skill,
patience, and determination. There is no question that reforms in many
countries would be strengthened if there were more visible evidence that
leading international organizations and Western governments were evenhanded
in their anticorruption campaigns, attacking the bribe givers with just as
much force and fury as they now use to attack the bribe takers.

The lack of perceived balance in anticorruption efforts weakens the hand of
the reformers, and those who support them, in many countries, but is this
perception justified?

Is it accurate to suggest that the bribe givers continue to lead largely
risk-free lives?

Is it stretching the truth to suggest that the lack of action against the
bribe givers by the governments of leading industrial countries amounts to
tacit support of bribe giving by these governments?

Or is a lot actually being done about the bribe givers as well, but the
broad public, especially in developing and transition countries, is just
poorly informed about such efforts?

These are important questions, and the ways in which they are answered in
particular countries have important implications for the functioning of
their economies.

It is true that only the United States has a law that specifically makes it
a criminal offense for a company to pay bribes abroad. It is also true that
numerous countries allow their international firms to deduct foreign bribes
from their taxes. It is true that the leaders of many international
corporations privately acknowledge that their firms pay bribes and that
both their governments and international organizations are aware of this.

But it is also true that just as more is being done today to secure reforms
on the demand side, more is being done to make life tougher for the bribe
givers, thereby reforming the supply side.

In order to avoid the risk of creating inaccurate perceptions, however, it
needs to be made clear that the efforts under way to curb both sides of the
corruption equation are still in quite early stages. At best, those seeking
to make a positive difference could be described as now having reached base
camp—still to be climbed is an Everest of corruption.

Efforts to challenge bribe givers and curb their activities fall into four
broad categories:

activities carried out by the press and public prosecutors in the
leading industrial countries to investigate and expose bribery;

activities to criminalize foreign bribery;

activities to curb money laundering; and

special antibribery initiatives focused on trade and international
procurement.

Scandals foster action

National corruption scandals sharply increase public awareness of key
issues and can stimulate constructive change in efforts to curb corruption.
This has been very evident over the past decade, during which each of the
leading industrial countries has experienced domestic bribery scandals.
Investigations and expos�s that have been seen all over the
landscape of the world's most affluent nations have brought corruption onto
domestic political agendas.

Not many years ago, some representatives of Transparency International, a
nongovernmental antibribery organization, requested a meeting with top
trade officials in the government of a European country. At about the same
time, another team from Transparency International sought a meeting with
officials from a leading business association in another European capital.
In both cases, the Transparency International teams were rebuffed. Since
then, major corruption scandals have been uncovered and publicized in both
countries and made the issue far more politically important. Today,
Transparency International enjoys considerable access to government and
business leaders in these countries.

As public prosecutors and the media have secured strong public support for
rooting out corruption and exposing the corrupt, so in many instances they
have been encouraged to redouble their efforts. Moreover, domestic
corruption scandals have encouraged editors of newspapers and magazines,
and producers of television programs in the leading industrial countries to
look beyond their national borders to investigate corruption around the
globe. Increasingly, such coverage has not only highlighted corrupt foreign
leaders but also sought to expose the corrupt bribe givers.

The increase in public attention paid to, and public awareness of,
corruption in the leading industrial countries has been the prime catalyst
for actions attacking the supply side of corruption. This phenomenon could
be observed in the United States in the 1970s. The combination of the
Watergate scandal and international corporate bribery scandals exposed by
the Securities and Exchange Commission and the U.S. Senate Finance
Committee's Subcommittee on Multinational Corporations created the stimulus
for passage of the Foreign Corrupt Practices Act in 1978. The act makes the
payment of foreign bribes by U.S. firms a crime. In view of the many recent
corruption scandals in industrial countries, there is now a chance that
legislation similar in scope to the act will be adopted in many of them.

OECD's antibribery convention

On December 17, 1997, a step was taken to curb bribe givers involved in
international business. The Convention
on Combating Bribery of Foreign Public Officials in
International Business Transactions was signed by representatives of the 29
member governments of the Organization for Economic Development and
Cooperation (OECD). It calls upon each of these countries to enact
legislation in 1998 to criminalize foreign bribery.

This initiative can have a global impact. Corporations headquartered in
OECD member countries undertake the overwhelming bulk of foreign direct
investment and large-scale international official contracting. Moreover,
there are indications that some of the governments of leading emerging
market economies will adopt similar legislation once the OECD convention
has been made effective—Argentina, Brazil, Bulgaria, Chile, and
Slovakia all signed the convention at the formal OECD ceremony last
December.

Crucial to the convention's success will be the manner in which it is
monitored. The aim of the convention's drafters was to highlight the fact
that monitoring its implementation will be a permanent part of the OECD's
work. The OECD, at an official level, will constantly be requiring
governments to report on enforcement issues. Sanctions, for example, are
envisaged on corporations found to be paying foreign bribes. At the same
time, civil society organizations such as Transparency International will
be monitoring enforcement. Increasing numbers of corporations, intent on
obeying the law, will want to ensure that their competitors also obey the
law and that a "level playing field" for commerce exists. International
business groups may also, therefore, join the enforcement monitoring
effort.

The OECD's action is a first step toward the development of a comprehensive
set of curbs on businesses paying bribes in international commerce. But it
is only a first step. The convention does not cover every aspect of
international bribery, and its coverage of some areas is vague. In time,
improvements will be made in the convention and loopholes will be found and
closed.

It was recognized by senior officials from many countries who worked on the
drafting of the convention that a formal treaty is not the best vehicle to
address all issues related to curbing the international activities of bribe
givers. In May 1996, OECD ministers defined a strategy, which was based on
"soft law," as part of a broad international anticorruption approach. (In
the OECD context, "soft law" means a recommendation for action by national
governments, as distinct from "hard law," which is a binding treaty
obligation, such as the proposed convention.) The ministers recommended,
for example, that member countries (and the wider international community)
take steps to end tax deductibility for illicit payments and tighten
accounting requirements. Although these actions may be taken most
effectively outside the convention, it is clear that only a holistic
approach to the question of curbing corruption by corporations engaged in
international business holds any prospect of success.

It is useful to recall that negotiations on the OECD
convention began several years ago in a political climate of
distrust. Some government representatives saw the enthusiasm of some of the
governments that supported the treaty (as opposed to a "soft law" approach)
as stemming more from a wish to delay action, by means of a lengthy
drafting period, than from a desire to create strict and enforceable
obligations. The text has been defined, however, and the final version is
progressive and should be effective, especially if agreed recommendations
on tax deductibility and other measures are also implemented in good faith.

Combating money laundering

Money laundering is the handmaiden of international corruption, and efforts
to curb money laundering can help to reduce corruption. The linkage is
clear: those who take bribes must find safe international financial
channels through which they can bank their ill-gotten gains. Those who
provide the bribes may well assist the bribe takers to establish safe
financial channels and launder the cash. To a considerable extent, many of
the world's largest banks—all of which are headquartered in the
leading industrial countries—are used in the global money laundering
game. Many of the banks are used unwittingly, in the sense that they have
few grounds to suspect that deposits being made have been illegally
transferred or are the proceeds of illegal actions or bribery payments.

It is very difficult to estimate the scale of money laundering, but an
indication was provided in a February 1998 speech by Michel Camdessus, the
IMF's Managing Director, in which he noted that "the estimates of the
present scale of money laundering transactions are almost beyond
imagination—2 to 5 percent of global GDP."

New detailed regulations have been introduced in many countries to
strengthen detection of money laundering and improve the supervision of
financial institutions to reduce its scope. But time and again, corruption
has subverted even the best regulatory initiatives.

For example, in February 1998, the OECD's Financial Action Task Force on
money laundering highlighted, in its annual report, the serious money
laundering problem in Mexico. It stated: "One of the most favored
techniques continues to be outbound currency smuggling, along with
electronic transfers, Mexican bank drafts and the parallel peso exchange
market. Corruption remains the chief impediment to Mexico's anti-laundering
efforts."

The task force has been working on a range of more pragmatic solutions. It
has developed a set of global standards for national policies to curb money
laundering, established cooperation systems among national authorities and
financial institutions to pool intelligence, embraced increasing numbers of
non-OECD member governments in its work, and been instrumental in assisting
regional anti-money laundering organizations in becoming effective.

At the same time, the leading regulators of the world's banking system are
pursuing a multiyear effort to create a modern and universal international
banking supervisory system that provides for greater transparency of
international financial transactions and their regulation than has ever
been achieved before. Success on this front will dovetail with the work
that is now being done to curb money laundering.

Undertaking direct initiatives

Direct initiatives in trade and public procurement are also starting to be
seen to curb the bribe givers and affect the supply side of global
corruption. The World Trade Organization (WTO) is sensitive to the issue of
corruption and the distortions it creates in the global trading system.
This subject will probably be addressed within several WTO
frameworks—for example, the WTO is exploring the possibility of a
multilateral investment agreement. The corruption issue could be dealt with
in this context. Pressures on the WTO, especially from some of the leading
industrial nations, will mount once the OECD antibribery convention has
become effective and governments have formally adopted policies penalizing
firms paying bribes in other countries.

Dr. Peter Eigen, Chairman of Transparency International, has suggested that
the WTO should observe and follow up on the anticorruption work done by the
OECD and forge a tripartite alliance against corruption with the IMF and
the World Bank. The three organizations could establish a
special high-level task force for this purpose. It is probable, as Dr.
Eigen has indicated, that representatives of both the private sector
(through, for example, the International Chamber of Commerce, which has
recently adopted new antibribery standards) and civil society could
contribute to this task force.

Hopes for such initiatives and for the effectiveness of the array of
antibribery interventions now being undertaken are partly based on vocal
support for work being done on combating corruption by a growing number of
top executives from some of the world's largest multinational companies and
by a growing number of government leaders. These assertions need to be
tested. An approach being launched by Transparency International, which may
prove to be a valuable demonstration model, is called the "Islands of
Integrity" scheme. This relates to individual major public procurement
contracts for goods and services.

A national government might establish one or several islands of integrity.
Each individual island would represent a single contract, or a set of
contracts in a single economic
sector. Corrupt practices would be eliminated from the transactions being
focused on by an agreement under a Transparency International "integrity
pact," which would oblige bidders to publicly pledge (with pledges signed
by top corporate officers) not to use bribes in the contract(s) in question
while the host government would sign documents pledging that it would
ensure total transparency on the part of its officials in the tendering and
contract award processes. In many instances, procurement is likely to be
funded by bilateral and/or multilateral development agencies, and they,
too, would pledge to make their best efforts to ensure that the procurement
process is completely clean.

Extensive discussions have taken place with a number of governments in
Latin America and in sub-Saharan Africa on possible implementation of the
Islands of Integrity approach, which has won endorsements from, for
example, the leadership of the Global Coalition for Africa and James
Wolfensohn, President of the World Bank.

In support of such initiatives, as well as other individual actions
designed to make life far harder for the bribe givers and bribe takers, is
a growing international army of civil society volunteers. While
Transparency International, which is just five years old, is the most
prominent antibribery NGO and has 70 national chapters around the world,
many other civil society organizations are increasingly seeing antibribery
work as central to their missions.

Environmental organizations have understood that to accomplish their goals
they must win battles not only to secure legislative and regulatory
standards but also to curb the corruption of enforcement officials in
numerous countries. Human rights and pro-democracy organizations have also
increasingly recognized how achievement of their most basic aims is
threatened by the pervasiveness of corruption. The targets of their
anticorruption efforts are multinational enterprises.

Major corporations are increasingly sensitive to the widening demands being
made on them by civil society groups to adopt policies (including ones
dealing with corruption) that embrace a growing array of societal issues,
from the environment to human rights. Accordingly, many corporations are
reviewing their policies and approaches, releasing new statements on issues
of business ethics and social responsibility, and seeking advice from NGOs
in evolving new policies and programs.

Conclusion

It is early days, however. Changing corporate habits takes time and is
difficult. Many corporations have been paying bribes around the world for
decades. But, through legislative and regulatory actions; new official
interventions; and the work of civil society, the media, and public
prosecutors, the heat has been turned up on the bribe givers. Corporations,
as a result, are starting to respond.

The agenda of actions designed to combat corruption by influencing the
supply side—penalizing the payment of bribes in international business
transactions—is getting longer and more substantive. Such efforts have
not received sufficient publicity, but as the relevant facts and trends
become better known, they should further encourage leaders in the public
and private sectors, who, meanwhile, are showing courage and skill in
influencing the demand side of the corruption equation by penalizing the
receipt of bribes.